How Long?

The housing bubble broke around the 4th quarter of 2006; just about 2 years ago. At that time, it was estimated that there was about 13 months of housing inventory in the country. In some hot areas, the inventory was about 16 months. Under normal circumstances, we should have recovered from that bubble in about a year's time as the inventory was depleted. But, we haven't. We are two years past the bubble-break and new home building is still seeing 18+% per-month drops (See Full Story). That's because we aren't in normal circumstances.

The thing that is complicating the whole home sales mess is primarily the foreclosure rate. This added tons of inventory, all those foreclosed homes, back into the real estate market. Many of these are really big, fixer-uppers that will need a lot of work before being resold. To complicate things further, consumer credit is tight. Probably as tight or tighter than during the great depression. Click to view a consolidated U.S. Consumer Credit chart as a popup window from Briefing.com's website. If you look at that chart, you easily picture a downward averaging slope from July of 2007 to September of 2008. That shows clearly shows the declining credit situation in this country.

I guess the issue will be how long available consumer credit will continue to be so restrictive and how much lower home prices will go before there is some daylight on this recession. When some bottom in these two areas is actually reached, we will be staged for a recovery. The Federal Reserve bank has lowered its interest rates for borrowing money to a target of 1/4 to zero percent; almost free money. But, only to the banks. Until the local mortgage lenders (those banks) take some risk by taking on more mortgages and other consumer loans without such steep conditions, like 20 percent down, we could remain in this situation for ever.

There is one fact that will always help the home market: birth. No matter the recession, people will continue to have babies. Those babies of two decades ago are going to need housing. That's pressure that the housing market can always count on. In times like this, you can also count on family members to help their sons and daughters with a down payment on a house. But, we really need those banks to lighten up to help recover this economy. The best money spent by our government would be to act like a "co-signer" on loans; or, in other words, a loan guarantor. This means they will have to, somehow, get down to the consumer level for loans and stop focusing on the banks. I believe Federal Housing Administration (FHA) has a role here but I haven't heard that agency mentioned even once since this housing bubble burst. As usual, just my opinion.